Franklin Templeton met with the SEC's Crypto Task Force to seek clarity on how the agency's innovation exemption applies to tokenized money market funds, ETFs, and funds on liquidity pools. The $1.8 trillion asset manager needs to understand potential 1940 Act issues for its digital asset ventures.
The financial services industry is exploring tokenization for traditional assets, and regulatory clarity from the SEC is crucial for the development and adoption of these products, potentially impacting how ETFs and money market funds operate in the future.
Franklin Templeton, a financial services firm with $1.8 trillion in assets under management, has met with the US Securities and Exchange Commission's (SEC) Crypto Task Force to seek regulatory clarity on potential issues arising from the Investment Company Act of 1940 for its tokenized fund initiatives. Representatives from the firm discussed how the SEC's innovation exemption might apply to tokenized money market funds, tokenized National Market System (NMS) ETFs, and tokenized funds operating on liquidity pools.
The firm specifically asked whether relief from Section 22(d) and Rule 22c-1 of the 1940 Act is necessary for a tokenized money market fund share to trade on a tokenized securities venue (TSV) and for liquidity providers to charge fees. They also inquired about similar relief needs for tokenized NMS ETFs trading on a TSV, potentially paired with stablecoins or tokenized money market funds, and whether the TSV's status as not a national securities exchange requires additional relief.
Discussions also covered the operational aspects of depositing assets and receiving liquidity pool (LP) interests, and whether such pools would be considered investment companies or their interests treated as securities, potentially requiring relief under the 1933 and 1934 Acts. In August, a related Franklin Templeton-affiliated fund received a no-action letter for investing in the OnChain Fund via blockchain wallets. In September, the SEC's Innovation Exemption provided TSVs relief from the 'exchange' definition and allowed AMM liquidity pools for tokenized NMS stocks, while also granting liquidity providers relief from 'dealer' registration. However, this exemption does not automatically address 1940 Act requirements for mutual funds, ETFs, and money market funds.
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